The Governor’s Budget – Pension Reform

Posted by: Brian Hull in State Budget

Article 16 of the Governor’s budget proposes to eliminate the cost of living adjustments (COLA) for state worker retirees.  The Governor would like to eliminate these COLAs for state employees, teachers, judges, and state police who were not eligible to retire on September 30, 2009.  Current retirees and those who are eligible to retires before September 30, 2009 would be unaffected by the change.

This may seem like a good idea at first glance, considering that the Governor claims that it may save the state almost $45 million a year.  But in reality the Governor’s pension reform proposal is incredibly bad policy for a number of reasons.

First, if this proposal is going to be seriously considered, there will likely be another mass exodus of state workers retiring before the change goes into effect in order to secure their COLA.  This happened when the previous pension changes were being discussed, and there’s no reason to think it won’t happen again. 

The most experienced workers, with the most knowledge, and the ones most likely to retire.  This will have a detrimental impact on the delivery of government services.  It’s safe to say that everyone wants the government to be more efficient and effective in providing services, but with the retirement of some of the most senior civil servants in state government, the expertise leaves with them.  That may be problematic for the delivery of government services.

Another problem associated with state worker retirements is that there are then fewer state workers contributing to the state pension system.  Benefits will need to be paid, and it is likely the state will soon have to take on a larger burden of financing the system.  The state shouldn’t exacerbate that problem be causing more retirement in order to “save money.”

Second, preserving COLAs is important to keep retirees from falling into poverty as they age, and as inflation eats away at their pension earnings.  We can talk about how cutting COLAs will save the state money, maybe $45 million a year, but it’s short-sighted.  If the retirees become progressively more poor, their dependence of other state services will increase.  The state can take money out of its left pocket to pay higher COLAs, or it can use the money from its right pocket to help support an increased number of poor retirees.

Preserving the COLA is important for economy growth.  Without a COLA, retirees’ purchasing power declines over time, they spend less and less, demand goes down, and the economy suffers.  The spending that occurs due to state pensions has a profound positive impact on the economy.  For every dollar that is contributed by taxpayers into the state’s pension system, $4.56 in economic activity is generated.  This is due to the growth of that investment over time.

State workers have already had to endure a pension revision which reduced their benefits and changed the retirement age based on years of service.  Going back to the state workers currently vested in the system and gutting their benefits even more by eliminating the COLA is patently unfair.  People make decisions about their employment choices and their future lives based on their wages and the benefits received.  The state shouldn’t change the rules along the way just because it can.

Comments (8)Add Comment
Pat Crowley
multiple "reforms" to pensions
written by Pat Crowley, February 03, 2010
there has been multiple refrms to the pension system for state workers, including reductions in 2009 and 2005, and increased contributions from workers in the late 90's. In fact, there have not been "enhancements" to the pension plan since the late 80's.
mangeek
I have to disagree, Brian
written by mangeek, February 03, 2010
Alright, obviously, we should -all- be so lucky as to have our retirement portfolios draw a fixed amount of purchasing power and pay us a steady amount through the rest of our lives. Unfortunately, there are several holes in your logic...

First, the idea that a group of people with the best retirement plans in existence, the government pension, are going to need to draw on social services if the pot isn't so sweet is erroneous. I know plenty of retired state workers, the ones I know live -very- comfortably. Not rich, but very comfortably. I'm talking about nice house near the beach and two cars comfortably. Making Rhode Island pensions work more like other states or the private sector wouldn't turn those people into paupers, they'd become 'nice house not near the beach, and one car' types.

As far as the economic activity generated by pension payouts... It's true that each dollar taken from a taxpayer and spent creates 'economic activity'. What that number doesn't account for is the -difference- between taking that dollar and giving it to a retiree, taking it and building a road with it, taking it and weatherizing a home, or not taking it at all in the first place. Using the same logic that you do, I could take you out back and mug you and state that I'll generate 'economic activity' with your wallet, and it would be true; but it doesn't account for what you would have done with it if I hadn't taken it from you, or if you had spent it the way you intended.

Also, Rhode Island isn't a game-changer. We're not California. We don't have weight to throw around. Making Rhode Island 'awesome' at the expense of our competitiveness is like playing chicken with a train, and it's why we're lagging economically. Our problem isn't that we don't take good enough care of our government retirees, it's that we deliver services -so poorly- and at -such high cost- that businesses set up camp in Massachusetts instead.

Honestly, I'd -love- to see an 'exodus' of 'experienced' state employees right now. Have you been having different experiences with state employees than I have? I've taken -three days off- from work to spend at the DMV before. I've seen fire marshals walk into a place, point at something, and walk out, I've seen people get the runaround over trying to open a business.

In Massachusetts, the DMV is helpful, courteous, and quick. There are towns where the employees will put together a custom-made folder with -all- of the paperwork you need to open a business. Contrast that to here, where you can spend a week going from building to building, looking for some inane form. Were you at the Coffee Exchange last year when a city employee came by and shut down all the outside seating over lack of a permit? In most other places, the official would pull the boss aside and say "Hey, you need a permit for this, and it looks like you never filed one. Here's a copy, file it with city hall... I'll be back next week to shut down seating if it's not done."
rasputinkhlyst
Disaster Don continues his purely partisan race to the bottom......
written by rasputinkhlyst, February 03, 2010
Rhode Islanders have suffered enough with poor leadership skills confounded with continued partisan onslaughts upon traditional Democratic constituencies. That is all Disaster Don has ever proposed and done. The greed of the those most able to pay as they steal more from those who work for a living is as disgusting as it is misguided. The short term gains, may well lead to some real long term losses sooner than these thieves would wish.

When ALL pay the same percentages on ALL income, investment, dividend, social security, and earned wages, fairness exists. Otherwise it is robbery from the middle classes, for the benefit of the few.

And Mangreek guess what. I use MANY services in RI and found them much more satisfactory than the continued incorrect billing, poor service, and overall bad advise with deceptive advertising I get weekly from corporations where I have to spend my time fixing their errors or discovering the truth. That waste of time is a different loss from a few tax dollars, but every bit as frustrating and it is not something I chose to do.

Its time that the mistakes and screw ups of those who are in power were paid for BY those in power and not the workers who had little to do with it. HONOR of contractual agreements is something business folks seem to know little to nothing about once they start to attempt to actually run a government "for the people". How contemptible these cheats and thieves are when they have leadership positions! They will funnel tax dollars to an industrial war machine or a prison complex, but let the peasants who work and have fulfilled their part of the deal find that the deal has changed just as they are to reap their promised rewards. Dress it up in the faux silk of protecting the taxpayers, but the workers themselves payed taxes as well for all those years. The idea of divide and conquer is an old one, now aided and abetted by a corporate media protecting its interests as well. Let us hope these workers for the State begin to force the issue instead of following passive votes as recommended by their often pathetic leadership. Let the State shut down and soon the need for paying fair wages and benefits become apparent.

I recall hearing on the Arlene Violet show a few years back that the average State pension was in the low to mid $20s. This is hardly living high on the hog after many years of service to the State.

And of course now Disaster Don is trying to starve the cities and towns so that more traditional democratic constituencies are effected. This while he floats stealth tax funds to numerous corporations and outsources like a corporate whore servicing a Navy shipyard.

Do you use State and/or Municipal Services" Then PAY FOR THEM. Stop nickle and dimeing the workers who did what they were hired to do and reneging on agreements that were long term in nature and will sever to further impoverish Rhode Island and Rhode Islanders.

Get rid of the flat tax NOW and enact taxation that effects everyone, not just additional payments and cuts by a small segment of the middle class (public workers) who cannot afford it while requiring no pain from a greedy upper class who has long benefited from upside down policies written to their advantage and who has more discretionary income. After all the middle class has paid its dues.

Its time for REAL change in America and in Rhode Island.

right_of_center
I agree with Rasputin
written by right_of_center, February 03, 2010
"When ALL pay the same percentages on ALL income, investment, dividend, social security, and earned wages, fairness exists."

I couldn't agree more. But which do you want, the higher earners to pay less or the lesser earners to pay more? Taken straight from the RI tax tables:

If your income range is between $0 and $32,550, your tax rate on every dollar of income earned is 3.75%.

If your income range is between $32,551 and $78,850, your tax rate on every dollar of income earned is 7%.

If your income range is between $78,851 and $164,550, your tax rate on every dollar of income earned is 7.75%.

If your income range is between $164,551 and $357,700, your tax rate on every dollar of income earned is 9%.
If your income range is $357,701 or more, your tax rate on every dollar of income earned is 9.9%.

===============
"I recall hearing on the Arlene Violet show a few years back that the average State pension was in the low to mid $20s."

For being a venue that normally thinks talk radio is a bunch of idiots, especially a Republican like Violet, I can't believe that she's being cited as a source. That being said, did you double check to see if she was correct?

rasputinkhlyst
Cherry picking your data does not support your arguments.
written by rasputinkhlyst, February 03, 2010
There is the upper limits on the taxes of social security, dividends are taxed at lower rates, and the FLAT TAX allows avoidance and lowered taxation. Taken collectively higher incomes pay less as a percentage of total their funds taken in and MUCH less as a percentage of disposable income as well. So, for example, end the upper threshold on social security and the preferential treatment of investment taxation.

Yes Talk Radio is for idiots, but a good percentage of those idiots vote. Nonetheless this was an informed retirement system source who was part of the Pension System and had these facts and figures right at his finger tips. There is no reason to double check what he said (Arlene had him on the show.).

I am glad we agree.
leftyrite
Disaster Don Is Aptly Named
written by leftyrite, February 03, 2010
Don Carcieri should thank heaven every day for his Brown University education. Without that credential in his background, people might listen to him and realize that Disaster Don does remedy dissolution; he facilitates it.

Much in the way some thickheaded uncle would be completely marginalized within the family were he not the most droning colorless voice, Carcieri repeats the same mantras daily: Reward the FIRE sector (look it up) and punish everyone else.

The public pension system came about through decades of careful building and saving--on the part of the "wrong" people, the lower middle classes. Finally, the pot of money became so big, and there was so little else happening, that guys like Don just couldn't keep their hands off the gold.

The financial meltdown is little more than organized theft that got out of hand, taking on a life of its own, distorting the federal government, and itself, perhaps beyond repair. The speculative fires were fed largely with pension money over which individual pensioners had no control.

Public sector jobs, decent jobs with benefits in the private sector, health security, pension security, these things are anathema to Governor Carcieri.

He wants a small handful of highly paid thickheads, like himself, to crush dissent and to push the country and the state into corporate/feudal control.

He doesn't curb disasters; he brings them into being.
right_of_center
The Whipping Boy
written by right_of_center, February 04, 2010
First, I'll say that I agree with assertions that the Governor is a hypocrite with regard to complaining about staff pay when he has poeple like Steve Kass floating around in state government at a six-figure salary, and he isn't the only one.

That being said, he sure is a convenient whipping boy for people who don't want to face truth and lay out the blame where it belongs. Or at least their share of it. Who has chosen to not fully fund the pension system for the last few years? Who actually crafts the final budgets that get passed?

With the way our budget system works, I don't see how Carcieri can get much of the blame, other than for the simple fact that he signs it. For his last budget, I wouldn't blame him if he simply submitted to Constantino a picture of Mickey Mouse. Constantino and the rest of the Assembly is going to do whatever they want anyway, so why not?

I'm not saying the Governor is without fault in this, but it's intellectually dishonest when people rant on about the Gov's blame in this but never mention the people who actually write and pass the final budget. If you're angry about recent budgets, keep that in mind in November when you see "Constantino" on your ballot for state treasurer.
leftyrite
Pensions Are At Issue
written by leftyrite, February 06, 2010
The big story of the continuing meltdown involves pensions. They represent easy money for stealing. Why do you think that equity fund operators or their surrogates want the Treasurer job in Rhode Island? That job has become interesting precisely because, in our present lax regulatory environment, a speculative treasurer can make a lot of money for well-connected "consultants" and can knowingly sink a fund without any true fear of lasting recrimination.

We're talking about bridge tokens in Tiverton when our hands should desperately be clutching our wallets.

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